Tiered Carry Structure (At the Employee Level)
Been toying with this idea as a potential way to solve for a carry bps allocation that is insufficient / below expectations when translated into DAW. The general idea contemplates receiving the current allocation of bps (eg the “insufficient level”) for distributable carry dollars only between a 1.5x and 2.0x fund return. Between a 2.0x and 2.5x return, bps allocation would then increase to a higher level, and again between 2.5x and 3.0x. In addition to normalizing economics to a suitable level should the fund outperform, this structure should help align incentives and potentially be less dilutive to the most senior members of the GP.
Any thoughts on the practicality of this scenario? Has anyone seen anything similar implemented? Thanks for your thoughts.
Doesn’t work because of the tax basis + you need to buy at NAV when you distribute late (and becomes ordinary income)
Above is correct
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